All Topics / The Treasure Chest / How to handle this case?

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  • Profile photo of GaryHouseGaryHouse
    Member
    @garyhouse
    Join Date: 2003
    Post Count: 0
    August 12, 2003 - 2:15 am

    Hi everyone!

    This is the situation: Myself, my wife and our daughter live
    in a unit which is worth $250K and is fully paid off. We also
    have an investment property (house) which is rented out at the
    moment, worth over $450K and $100K is owed on it. We just purchsed
    a unit worth $270K, which is also rented out. Owe $260K on it.
    We would like to move into the house and rent the unit that’s paid out. This
    wouldn’t be very wise investment wise, I know.
    Is there a way of “transferring” the debt from the house onto
    the paid out unit? If the unit wasn’t fully paid off, I could probably
    refinance it and pay off the house before moving into it.
    But in this situation, I have no idea what to do. Any suggestions?

    Thanks

    Gary

    Profile photo of BettyBlockbusterBettyBlockbuster
    Participant
    @bettyblockbuster
    Join Date: 2003
    Post Count: 46
    August 12, 2003 - 3:01 am

    Hi Gary
    I would of thought you could transfer the loan from the house to the flat. It is probably worth speaking to a mortgage broker about this.

    BB

    Profile photo of Elysium-MElysium-M
    Member
    @elysium-m
    Join Date: 2003
    Post Count: 259
    August 12, 2003 - 3:35 am

    I suspect that the bank will probably require you to borrow money on the unit to pay off the loan on the house. Given that you’ll have quite a comfortable level of gearing on the new unit loan, you may want to make sure that your house (which will now be debt-free) is not cross-collateralised to secure your unit loan. You will have to pay some loan application and discharge costs, but I’d see that as the cost of restructuring your finances.

    Even if the bank did agree to transfer your mortgage, there will probably still be fees you have to pay. You also need to make sure that the house is released from the existing mortgage.

    A mortgage broker can advise on whether my suggestion works. I wouldn’t ask the bank – they would simply tell you to go for the option that would give them the most security.

    Cheers
    M

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    August 12, 2003 - 4:51 am

    You can swap loans around, increasing one and decreasing the other for example. But for tax purposes, it is the purpose of the loan that matters.

    But Garry wants to have a debt on his IP and no debt on his home for tax purposes. Unfortunately you can’t do that. The ATO will trace the funds and disallow it.

    One way you could do it would be to sell the fully paid off flat to your trust, and then borrow money as trustee to buy it (off yourself). That way the funds are legitimate borrowings for investment purpsoes. If you jsut increased you loans the purpose would be non investment so the interest deductions would be disallowed.

    Terryw
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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